Expectations high for interest rate hold as MPC meets today

As the Central Bank of Nigeria’s (CBN) Monetary Policy Committee (MPC) convenes its 297th meeting today in Abuja, financial market participants and foreign investors are anticipating a decision to maintain the benchmark interest rate at its current level.

The meeting, chaired by CBN Governor Olayemi Cardoso, will span two days, with the outcome scheduled for announcement on Tuesday.

In July 2024, the CBN raised its Monetary Policy Rate (MPR) by 800 basis points to 26.75 per cent, up from 13 per cent in May 2022, marking a 13.75 percentage point increase over two years. This move was part of the bank’s efforts to combat rising inflation and stabilise the economy.

Analysts suggest that the decision to hold the interest rate steady reflects confidence in the current economic trajectory and a desire to maintain stability in the financial markets. However, some experts caution that the CBN may consider a rate cut shortly if inflationary pressures continue to ease.

“MPC will likely hold the policy rates at their current levels,” Uche Uwaleke, director of the Institute of Capital Market Studies at Nasarawa State University, said.

He said this against the backdrop of the fact that headline inflation has moderated in July and August 2024. Also, the US Fed Reserve has started cutting interest rates with the Bank of England and European Central Bank likely to follow suit.

Nigeria’s inflation rate dropped to 32.15 per cent as of August 2024 from 33.40 per cent in July 2024, data from the National Bureau of Statistics (NBS) showed.

In September 2024, the Federal Reserve made its first cut to borrowing costs since March 2020, lowering the target range for the federal funds rate by a significant 50 basis points to 4.75-5 per cent.

Analysts at Afrinvest Research said the MPC is likely to weigh their decision against emerging risk to domestic prices from the energy sector and flood-related disruptions.

“We opine that a rate cut would be premature. On the flip side, additional hikes should be off-the-card due to cost to consumption and production activities, including government borrowings. On the back of these, we forecast a HOLD decision this week, to allow the MPC evaluate the evolution of risks, macroeconomic dynamics and measure appropriately,” they said.

According to analysts at Cowry Asset Management Limited, it is expected that given the progress of the recent efforts at taming inflation, the committee may adopt a wait-and-see approach, to monitor price developments closely and evaluate the full effect of previous rate hikes on the economy.

“This cautious stance will allow the committee to assess whether further tightening is necessary or if the current policy trajectory is sufficient to maintain price stability,” the analysts said.

Analysts at FBNQuest said, “We expect that the committee will likely pause its rate tightening cycle to evaluate the economic impact of the previous rate hikes.”

At the 296th meeting of the MPC in July, the committee increased the policy rate by 50 basis points, bringing it to 26.75 per cent. Additionally, the MPC revised the asymmetric corridor around the Monetary Policy Rate (MPR) to +500/-100 basis points, up from +100/-300 basis points, while keeping all other parameters unchanged.

This adjustment has led to the lifting of the suspension on the Standing Lending Facility (SLF), allowing authorised dealers to access the facility within the specified operating hours of 5:00 p.m. to 6:30 p.m. via the Scripless Securities Settlement System (S4).